Maersk has profitable 1Q despite 'price war'

Friday, May 17, 2013

Maersk Line made a profit of $204 million in the first quarter of 2013 compared to a loss of $599 million in the first quarter of 2012. It said the turnaround in the financial performance was achieved through lower costs, as revenue was unchanged at $6.3 billion in both quarters, and came despite price aggressiveness.
Financial results for the world’s largest container shipping company were reported Friday morning by the A.P. Moller-Maersk Group, a conglomerate whose operations also include APM Terminals and extensive operations in the oil and gas industry.
The entire Maersk Group reported profit of $790 million in the first quarter, a 33-percent decline from the $1.2 billion earned in the same period last year. Profit before tax was $9.5 billion in 2013, up 13 percent. Group revenue was $14 billion in the first quarter, a decline of 2 percent.
“The progress has been driven by Maersk Line,” said Nils Andersen, the chief executive officer for the A.P. Moller-Maersk Group.
Maersk Line's average freight rates in the first quarter of this year were $2,270 per 40-foot container, 4.7 percent higher than in the first quarter of 2012. It said that the increase in freight rates was partly offset by container volumes that were 4-percent lower. The company moved the equivalent of about 2.1 million forty-foot containers during the quarter. Total cost per forty-foot container decreased by 7.1 percent, the company said, mainly as a result of improved network efficiencies.
Maersk Lines fleet capacity increased 4.2 percent.
“Maersk Line is facing some price aggressiveness on the Asia-Europe route at the moment. These are things that happen, but they have done a tremendous job on adjusting their network and reducing cost, so we are quite comfortable they will get through this period in an acceptable way. Price wars will happen once in a while in the container business, especially as long as there is significant overcapacity," Andersen said.
“We have relatively good contract coverage, but, of course, the spot part of our business is negatively impacted," he continued. "We are not leading the price war at all. We are reluctantly following price reductions of others, but of course we are not prepared to give up market share on a permanent basis, so we will adjust.” About half the company's container business is under contract. He also said “a number of carriers are now announcing rate increases to
take effect July 1, and we are doing that as well. This is urgently
needed by the industry, as we have seen competitiors come out with poor
results for the quarter.”
Maersk said an initiative to raise rates on refrigerated commodities
an average of $1,500 per forty-foot container had a modest impact on its
first quarter results. The rate increase has been successful increasing
reefer rates on South-North trades, but modest impact on East-West
trades.

Andersen

Andersen said the company has controlled expenses in the container business by reducing capacity and had 28 idle ships at the end of the first quarter, the equivalent of about 6.5 percent of its fleet.
The company noted that bunker cost was 26 percent lower than it was in the first quarter of 2012, driven by a 19-percent reduction in fuel and a 9-percent fall in average cost of fuel to $626 per ton.
Andersen said Maersk Line lso benefited from a higher share of short sea business.
“The East-West trades are developing less well than the intraAsia and intraEurope business,” Andersen said. “And both costs and rates are correspondingly lower, as they are much shorter trips.”
Andersen would not comment on rates in the second quarter of this
year, but said Maersk Line has a slight advantage over its competition
as a result of better contract coverage and prices that are slightly
better than spot.
Andersen noted that the company will place the first five of 20 18,000 TEU ships into service this year. He said they will be introduced with “a lot of respect for market balance. If there is one thing the Asia-Eurpe trade does not need at the moment, it is more capacity.”
The company said it expects that global demand for container transport will increase 2-4 percent this year down from the 3-5 percent it was estimating earlier this year.
Asked if he was reassured by the "depleted balance sheets" of other carriers, Andersen said "the shipping industry continues to amaze."
Nothing that Maersk made money in 2012 and in the first quarter while other carriers lost money, he said that "we take comfort from the fact that we have a higher margin and better return on assets that our competition. We believe when we have a tough time, our competition has a very bad time, and there is a limit to how long any sensible businessman would want to sustain rates that are not profit making."
He said he thought carriers were surprised looking at the decline in Asia-Europe volumes and that looking at their own declines and thought they were losing market share and reacted to it by cutting prices.
APM Terminals
Maersk said its APM Terminals division had a profit of $166 million compared to $226 million. Revenue fell $25 million to $1.04 billion. The decline reflected the company’s sale of its U.S. chassis business last year and a share of a Chinese terminal.
The company said it handled 8.6 million TEU during the quarter — about the same number of containers as it did in the first quarter of 2012. “Positive developments in growth markets offset reduced volumes in North America and Western Europe,” the company said.
The company said it has competed construction of a terminal in Santos, Brazil, and that operations are expected to begin at a reduced level in June. Andersen said start-up has been held up by delays in dredging and government approval.
Damco, the group’s forwarding and logistics subsidiary, said it had revenue of $773 million in the first quarter 2013 compared to $728 million in the same period in 2012. Damco said that during the quarter, “Ocean freight volumes continued to show low growth rates similar to late 2012, with only 1-percent growth over prior year period. Airfreight volumes still showed rapid growth, 15 percent over 2012, which was well ahead of market.”
It said its business was “enhanced by the acquisition of Pacific Network Global Logistics (PacNet).”
Damco said supply chain management volume growth accelerated further in the first quarter, showing 10 percent growth over the first quarter of 2012. - Chris Dupin